Adjusted basis in partnership

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  • #3291
    aaronl
    Participant

    In 2018 I sold a partnership interest and will be declaring a capital loss on the sale. To calculate the amount of the capital loss, I understand that I need to calculate my adjusted basis in the partnership, which differs slightly from the capital account shown in box L of the K-1.

    The K-1s I received from this partnership are not that complicated and the only thing I see that would lead to a basis adjustment is box 18c, “nondeductible expenses”. The partnership reported a few dollars of these each year. “Partner’s Instructions for Schedule K-1” tells me I should decrease my adjusted basis in the partnership by these amounts. So far so good. The other boxes with nonzero amounts on the historical K-1s are boxes 1, 2, 4, 5, 9a, 9c, 10, 17A, 17B, 19, and 20A, and 20Z, which I believe affect the adjusted basis in the same way they affect the capital account analysis, and don’t need to be treated specially for the adjusted basis calculation.

    I’m confused, though, about how this interacts with state taxes. Each year I received a California Schedule K-1 with adjustments to the federal numbers, including adjustments to box 18c. Do I need to compute a different adjusted basis number for California, and if so, would I report a capital loss adjustment on my California tax return to account for the different amounts of capital loss between federal and state?

    #3293
    kaneohe
    Participant

    Not sure my experience with real estate limited partnerships (LP)is applicable to your partnership (you never mentioned limited or real estate)……but for what it’s worth…….

    I always got the impression that the capital account numbers in box L were not used for tax prep. In the final K1 instructions in bold is the statement “The items in section L are not reported on your tax return“. Perhaps this was true because the general partner
    calculated the necessary numbers for the limited partners. Perhaps it was just my ignorance but I could never figure out the relationship between the Box L Capital account info , the gains that were reported, and the cash that was distributed.

    In your case, the K-1 instructions seem to suggest a path to calculating
    the basis. Perhaps you could confirm w/ whoever is issuing those K-1s
    that your approach is correct for calculating the basis to be used for the final gain/loss. If it is, your method in the last paragraph sounds reasonable.

    CA has a Sch D-1 that is used if the CA gain is different than the Fed gain https://www.ftb.ca.gov/forms/2018/18_540d1.pdf
    There is also a Sch D that is used for CA CG adjustment. The end result seems to be an adjustment that you use on Sch CA to adjust the capital gains as you suggest.

    The key seems to be how to calculate the basis and what you use for the sale proceeds. In my case I was spoon fed the gain so I didn’t have to figure that out but your adjustment process seems reasonable.

    #3297
    aaronl
    Participant

    Thanks, this is helpful. The partnership in question is a limited partnership.

    I’ve seen it pointed out that box L is not in fact the taxpayer’s adjusted basis, so the taxpayer should do his/her own calculation, but it seems to me like box L (when computed with the tax basis method) is useful at least as a sanity check. Except for things like box 18c that don’t represent taxable income, the calculation of the adjusted basis come out basically the same (at least that’s my hypothesis – I am way out of my element here).

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